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The beginning of this article is a fairy tale that ignores what used to be one of the biggest drivers of revenue for banks: overdraft fees. Maybe the HN crowd h

• ca98am79 5y ago
  This was the story of my parents lives when I was growing up. They constantly paid these fees and they constantly were under water financially. I never forgave the banks for this. However, my parents were also to blame - they simply were unable to manage their finances.
• deleted 5y ago
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• mherdeg 5y ago
  It's not just overdraft fees right? It's overdraft fees plus transaction reordering which makes the magic happen. I'm still kind of mesmerized on this one, it felt like regulatory action almost happened, the most lucrative of the overdraft practices got limited circa 2009/2010, and then banks voluntarily toned it down and the regulators mostly looked the other way on things like reordering?
  • EdwardDiego 5y ago
    Sounds like one of those "Look! We came up with a voluntary code of conduct, so your regulatory body can stop investigating necessary regulations, we've changed honest, so please feel free to have a triumphant press conference and congratulate yourselves without actually holding us to account."
  • numair 5y ago
    Thanks for reminding me about reordering. There were (are?) just so many dirty tricks. It’s been a couple years since I’ve lived in the US, so I am not aware of what things look like now — hopefully others can comment.
  • rjzzleep 5y ago
    What's transaction reordering? 1. have $10 in your checking 2. pay $9 for steak 3. fill account with $500 4. buy sausage for $2 bank reorders it as 1. have $10 in your checking 2. pay $9 for steak 3. buy sausage for $2 4. charge overdraft 5. count $500 deposit Is that what banks would do? I faintly remember that really old accounts I had in Germany had overdraft capability, but for all newer(last decade or so) accounts, I had to explicitly request overdraft. I guess it was inherently more user hostile in the US. Although in German its not because of good service, but rather because banks don't trust the consumer.
    • steveklabnik 5y ago
      I left a comment about how this happened to me... 8 years ago, wow https://news.ycombinator.com/item?id=6424493 https://news.ycombinator.com/item?id=6424493
    • AdamJacobMuller 5y ago
      The specifics of it are dependent on the bank, but it can be more insidious than even your example. Given a balance of $100 and 4 transactions of $20, $20, $20, $90 you can either be charged one, or three overdraft fees depending on the order in which your bank deducts those from your account. Basically, ordering from largest to smallest will cause the most number of overdraft fees.
      • NikolaNovak 5y ago
        I'm going to re learn the lyrics to Oh Canada and sing them joyously and thankfully... Our banking system gets a lot of ire but dear Gawd.
        • joecool1029 5y ago
          I seem to recall there being service levels at banks in Canada and maximum numbers of transactions per month until one gets hit with per-transaction fees. I was told explicitly when I opened my TD Canada Trust account there that it was imperative that I both keep money in the accounts and use them occasionally or dormancy fees would accrue (and if there was no money left, they'd then slam it with overdraft fees). The benefit of US banking despite lax regulation was that there's a ton of different banks and credit unions to choose from. Some are great and some are shit. Literally hundreds to pick from. Canada there was like 5 big banks, a large credit union, and then depending on your area there was maybe perhaps a small community credit union.
  • eyelidlessness 5y ago
    My last bank (US Bank, don’t bank with them) did this in a way where in one day where I had only one transaction which could overdraft they charged 6 overdrafts even though my net would have been positive. If I wasn’t (at the time) skilled at ~~kicking and screaming~~ advocating for myself I would have been out $180 plus whatever 30 cents they had calculated I went negative. Which (again at the time) was the difference between whether I was gonna be homeless.
    • eyelidlessness 5y ago
      Oh since I’m naming names. The bank before that, Wells Fargo, honored a check I wrote > 2 years earlier. Sure, I wrote it and I was good for it at the time. I forgot about it. Maybe I could’ve left that money in limbo but at a certain point I assumed my moderately wealthy aunt wasn’t gonna cash it. Well it doesn’t matter what I assumed, the law said the check was no longer valid. When Wells Fargo honored it and overdrafted me they disregarded the law and said I was committing check fraud if I didn’t pay up. That’s how I ended up at US Bank, because fuck if I’m going to pay you for illegally processing my check. Edit: and yeah I had “check fraud” on my record for years after because Wells Fargo said they didn’t care about the law and just lectured me about being responsible for checks I wrote.
      • bagels 5y ago
        You got charged and convicted of a crime?
        • MereInterest 5y ago
          Not the OP, but having it on his record likely refers to his credit record, maintained by private agencies, not a conviction record.
          • rootusrootus 5y ago
            Probably ChexSystems. Kinda like a credit report, governed by the same laws, but distinct from the big three bureaus everyone is familiar with. All the banks use them. And anything negative on that report will prevent you from opening up an account somewhere else until you get it removed.
  • steveBK123 5y ago
    The transaction re-ordering to maximize the amount of overdraft events should have put execs in prison. Out of all the obviously corrupt, mal-intent, direct consumer harming practices this was quite near the top.
    • Foobar8568 5y ago
      In a French bank, I have credit transactions first then debit ones, in a Swiss bank, the contrary, I was shocked, especially that day, I did check my bank account to verify if I could proceed with a wire transfer, the following day, it shown a temporary minus amount but I didn't get an overdraft. So yes, fuck banks.
      • laurent92 5y ago
        In Australia in 2010 I got a debit card for the first time in my life. The card would simply reject transactions. “As should be”, I thought. It was a revolution for me.
        • devoutsalsa 5y ago
          Revolut, Simple, and Chime, the three online only banks I have tried, all do (or did) this. It really helped back when I was living paycheck to paycheck.
          • sueders101 5y ago
            For what it's worth; I banked with Simple for the better part of 10 years, but then they acquired by BBVA who was then acquired by PNC. That meant that all Simple customers had to go through account migration twice this year, and in the end now have all the typical fees associated with traditional accounts. Ultimately I decided to move to a local credit union.
            • watersb 5y ago
              Yeah it's been a ride. I moved to One Financial, but I've kept a local credit union account as well. This probably makes no sense, but then again it's ok to feel conservative about banking. It's worked out for me so far. The local credit union is one block away. I have not used it but there are no fees to just park money in a checking account. I still don't know what happpens to such retail banking as interest rates go negative.
  • iskander 5y ago
    I remember getting hit by reordering when I was in college, getting by on a coffee shop job. The bank ordered a group of concurrently unresolved deposit/withdrawals to maximize the overdraft fees (I think I got hit with ~3x $35). It seems silly now but when you're making $5.25/hr, going more than $100 in the red really stings.
  • loh 5y ago
    I remember this happening to me when I was a broke college student over a decade ago. I had to pay some bills and buy some things, and I expected a single overdraft fee, as I knew my exact account balance and the order of the purchases. I remember being hit with 3 (maybe 4) overdraft fees and immediately called my bank for an explanation. They gave me some bs like, "We reorder transactions to make sure your large ones go through first since they're probably more important." It was obvious at the time what they were really doing and why, which led me to eventually close my account with them and go with a local credit union.
  • Ozzie_osman 5y ago
    Yea. For people who aren't familiar with this, the bank will reorder your transactions and batch them to do the biggest one first. Then you get charged an overdraft fee per transaction after that. If they did the small ones first, you may not go into overdraft until the last big one... So you'd pay one fee. Do the largest first, then each small one causes a fee. Highway robbery.
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    • chasebank 5y ago
      In 2004 I was traveling around Europe as a 20 year old. Spent my debit account down to my last $20. I had a flight from Barcelona back to Boise and the airline had supposedly issued a paper ticket, not an e-ticket. Long story short, if I couldn’t produce the paper ticket, my flight was going to leave without me. I didn’t have a credit card and I knew I was out of money but I said what the hell, try my debit card to purchase a new flight. Lo and behold, it went through! I came home and a week later my account was -$5,500. Wells Fargo had taken the last charge, the $900 flight, reordered it and I accumulated $4,600 in overdraft fees. I’ve never been so angry in my life. They did not fix the charges, and I got bailed out by my mom. I plead my case over and over but everyone, including my mom, just drew it up as an non-responsible college kid. Every time I tell this story it makes my blood boil.
      • jakub_g 5y ago
        How in the hell they calculated so much overdraft fees? They charge 500% overdraft?
        • ikr678 5y ago
          Poster probably had a series of small transactions from travelling ($5,12$,$13 etc). The bank moved the $900 to the front of the payment queue, and then every one of the smaller transactions cops the fee. It wasn't 500% of 900, it was the sum of the overdrafts on all the previous transactions.
  • NoblePublius 5y ago
    It wasn’t voluntary. Wells Fargo lost a mega million dollar lawsuit for reordering transactions.
• deleted 5y ago
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• saxonww 5y ago
  I don't know if it addresses your point at all, but two posts back he talked about overdraft fees: https://bam.kalzumeus.com/archive/financial-innovation-is-happening/ https://bam.kalzumeus.com/archive/financial-innovation-is-ha.... There was an HN thread for this one too; patio11 is HN-famous.
  • numair 5y ago
    That seems like yet another PR piece that revolves around a, “look, finance didn’t need regulatory action to fix itself, it just needed ‘innovation!’” narrative. No, sorry, these markets were created by regulatory action, and they still need regulatory action to fix the flaws in their design. I found patio11 to be more informative before all of his writing suffered from a Stripe bias. And I found Stripe more interesting when it wasn’t trying to be the Microsoft of finance. Edit: And so people understand how these two things — abusive banks and Stripe — are connected: revenue-envy among large corporations trying to move up the ranks and attract bigger valuations almost inevitably leads to “innovations” that are bad for the customer / community / whatever. All roads lead to Rome.
    • nverno 5y ago
      at least they got rid of those $35 overdraft fees on a 50 cent negative balance, that was BS. So, maybe there is a brighter financial future
    • ffggvv 5y ago
      j.p. morgan existed before regulatory bodies did
      • numair 5y ago
        The system that maintains the banking oligarchy is a regulatory creation. We replaced the wildcat [bank] with the fat-cat [banker]. https://en.wikipedia.org/wiki/Wildcat_banking https://en.wikipedia.org/wiki/Wildcat_banking
        • 5y ago
• DaiPlusPlus 5y ago
  > “doing a service for the community” Go on then... what was their argument?
  • numair 5y ago
    There is Congressional testimony somewhere on this topic that provides their talking points. They were scolded without being actually punished, if I remember correctly.
    • chrisseaton 5y ago
      I guess stopping you defaulting on loans so losing your car and things.
  • dec0dedab0de 5y ago
    I believe the argument in favor of overdraft fees is that they are essentially extending a line of credit at the moment the customer needs it. As opposed to just denying the transaction outright. I had this happen to me once well over a decade ago, and I argued with my bank to make it so I would just be denied if it ever happened again. They acted shocked as if most people would rather go into debt than be denied.
• salawat 5y ago
  When I realized this is when I swore off of Fintech. Permanently.
• eyelidlessness 5y ago
  Overdrafts were the second thing that came to mind, a decade into clawing my way out of poverty and just plain being broke. The first was the scam of debit cards and secured credit cards being treated fundamentally differently. They both operate basically the same way for customers (you’re only spending your own money, it’s not credit in the lending sense), but debit cards are a profit center with no credit reporting for the customer and secured credit cards can be recommended or not in any discriminatory way anyone wants (which they are).
  • rp1 5y ago
    What do you mean by secured credit cards can be recommended is any discriminatory way? I definitely think the nation should prioritize financial literacy in the education system, but I'm not sure you should be trusting any information you get from a bank regarding what to do with your money.
    • rjzzleep 5y ago
      Well they work like debit cards in a way, you can't overdraft and you build credit with it. It's what's recommended for newcomers to the US. But I'm not sure they're really the same given that your credit limit will be as high as the spare amount of money you can keep as security in your bank.
    • eyelidlessness 5y ago
      What I mean is that for customers, secured credit cards and debit cards have roughly the same risk, but banks have obligations to offer checking accounts fairly but offering the equivalent credit-building account is up to their own discretion. It’s considered lending even though they’re lending the customer their own money.
      • rp1 5y ago
        Do you feel that the "discretion" violates the equal credit opportunity act? Technically, credit discrimination is illegal, but I could see a bank taking liberties with people who don't have the means to protect themselves.
• renewiltord 5y ago
  When you come to America as a student, the first thing the other international students tell you is that you turn those off when you get a bank account. Easy access to cheap credit is one of America’s best things but this is expensive credit. You don’t want it.
• NikolaNovak 5y ago
  Hmm I thought that previous article leading into this one specifically addressed that exact point on overdraft fees?
• rdevsrex 5y ago
  Yeah, that’s why eventually paid 5 bucks a month more for an account without an overdraft facility, meaning any negative transactions would be rejected. I can’t believe this isn’t the default.
  • ThunderSizzle 5y ago
    Or just use a credit card with a low credit limit?
• R0b0t1 5y ago
  If your colleague had thrown him out of the window the world would be a better place. Think on that.
  • bagels 5y ago
    Not really, the bank would just pay someone else to say and do awful things.
  • numair 5y ago
    We later learned that the executive in question hung out with Jeffrey Epstein... So... You might be on to something.
• tehabe 5y ago
  I'm really confused about those overdraft fees (or rather overdraft interests). My bank has also charges overdraft interests, they are currently 6.99% p.a. So if I get into overdraft due to one payment but money comes in on the very same day it shouldn't be that much interest I have to pay to the bank. For an overdraft of 100 euros it should be like 2 cents for a day.
  • loeg 5y ago
    In the US they were often flat charges on the order of $30.
• netcan 5y ago
  Hoo... Ho. That's a bit much. "half PR" & "politically inconvenient" are an unnecessary assumption of bad faith. Patio11's not doing PR or propoganda. Disagree and/or add to the discussion as you see fit, but let's try to be a little more generous... especially to a member with such a history of contribution to the community.
  • numair 5y ago
    > Patio11's not doing PR or propoganda. An employee of a multinational financial services company writes a historically revisionist article about an area in which his company has direct regulatory and financial exposure.[1] With only implicit disclosures of conflict of interest. I would say that it is only because of the author’s long-term goodwill in this community that this stuff isn’t looked upon with a very critical eye. I’ve learned the hard way that someone’s past identity does not necessary correlate with good behavior in a new, more “important” persona. Silicon Valley is filled with examples of exactly this sort of thing. 1: Remember, the former Governor of the Bank of England is on his employer’s board. This isn’t a passionate evangelist for a struggling startup charity case, or someone telling us cool facts about their weird hobby.
    • netcan 5y ago
      historically revisionist? I don't see how we can get anywhere discussing like this. Instead of discussing the topic, it's all meta. Ad hominems, characterizations of the argument and accusations of bad faith. As I said, disagree and make your case. You don't have to assume credibility, but don't assume malice. What's the point of having a discussion if it's not a good faith discussion.
      • numair 5y ago
        > historically revisionist? Yes. The “big banks lost money servicing the poor people” narrative is totally wrong, and the author knows this. We can’t let this incorrect story get more traction than it already has. Too many innocent people suffered great hardships in the real story of what happened — look at the stories in this thread! > What's the point of having a discussion if it's not a good faith discussion. Edward Bernays might have a few ideas.
• clippablematt 5y ago
  Had five years or so of that awful cycle. It’s interesting when you meet people who haven’t experienced living under the brutality of the banking system. Overdraft, payday loans, high interest credit. They think it’s all fine. Fear of overdraft fees is a real class divider. One thing I really remember is being absolutely broke, and a guy from the bank calling to see if I’d be interested in taking on a credit card “we think it’ll help you out right now”, I’m so glad I didn’t. I think the same people also fail to see the passionate drive it generates, I’ve been working in crypto a few years now and there really is a shared hatred for the big banks, with many people feeling abused by those systems. The result is a lot of politically driven people, who now also have raised funding for the next few years, who’s goal is to make those places irrelevant and create as many other options as possible.
  • capableweb 5y ago
    It seems to be a common theme that the ones who have been screwed by the banks or are currently being screwed by the banks are cheering for cryptocurrencies, while the ones with no experience of getting fucked themselves keep asking "But what problem does cryptocurrencies really solve? Seems useless to me because banks do the same thing"
    • simonh 5y ago
      If cryptocurrencies were actually being used significantly as currencies, you might have a point. My skepticism of cryptocurrencies has nothing to do with how they replace banks, because they flat out don't replace banks at all. Or rather, the extent to which they do so is trivial. I mean, if they were taking significant business from banks, wouldn't you think the banks would be lobbying to have it banned? But no, instead they think it's wonderful because it's another highly volatile new asset they can trade and provide services for. I'm sorry, but the idea that crypto is sticking it to the man by disinter-mediating the banks is a crypto-cult delusion.
      • capableweb 5y ago
        The invention of cryptocurrencies (specifically Bitcoin at least) is not to replace banks, but to replace the way transactions happens. A normal bank transfer involves contracts and processes to make sure everyone that handles the transaction is honest. You basically put your trust on contracts that the transaction will actually go through. Bitcoin replaces this need of trust in the contracts with need of trust in the protocol that can be inspected easier than contracts that are most often private, at least that's the thinking. > wouldn't you think the banks would be lobbying to have it banned? There are plenty of examples where the banks in a country no longer accepts transactions from/to cryptocurrency exchanges, Sweden being one example where it's basically impossible to deposit/withdraw SEK/EUR to your bank if they think it has anything to do with cryptocurrencies. In a ideal world, cryptocurrencies are as protected as normal currencies, and the need for banks are still there as not everyone will run their own node and have custody over their own wallet. Banks adds extra security, something some people want. Problem becomes when you start thinking that one solution applies for everyone. Cryptocurrencies, just like normal currencies, doesn't work for everyone. People should be free to choose, without being banned left and right for arbitrary reasons. Try getting through banks fraud departments when you make transactions from/to countries like Nigeria, and you'll know what I'm talking about.
• beh9540 5y ago
  This and the glee of executives over systems that increase the potential for overdrafts or charge backs is why I’m glad to not be in banking anymore. One of my most memorable conversations was with a rep from one of the core processors about how she makes it her mission to make sure everyone in her family opts out of overdraft protection. Banks spend so much time on the wording to make it sound like they’re doing you a favor, I’ve had to convince my wife not we didn’t want it.
• claraem0201 5y ago
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• tzs 5y ago
  This happened to me once, at BofA, before web-based and app-based banking so you only got verification that things were what you thought they were when you got your monthly statement, went to an ATM or teller, or used a cumbersome telephone interface via a touch tone phone: 1. Initial balances: -L on BofA credit card, 0 on checking account, S in savings/investments. When I write a check I transfer money from savings or investments to checking to cover it. 2. I attempt to pay my credit card bill in full by check, but I don't get the money transferred to the checking account in time to beat the check. 3. Overdraft protection on my account kicks in, which was backed by the credit card and treated as a cash advance. That did the following: 3a. Transfer L from credit to checking 3b. Charge overdraft fee O to credit card 3c. Charge cash advance fee F to credit card for cash advance of L+O+F 3d. Transfer L from checking to credit card Note that the credit card balance went from -L to -2L-O-F from 3a through 3c, then to -L-O-F after 3d. Since the credit card always had a debt of L or more on it during all that, an interest charge I for not paying off the card completely during that month was changed. I didn't find out about this until my next statement, where the balances were: -L-O-F-I on credit card, L on checking, S-L in savings/investments. I found this absurd and irksome for two reasons. 1. If it had been my Discover card or my Capital One card I was trying to pay off, the card balance would have ended up at 0 after all this so I wouldn't have incurred interest charges. This would have been a lower net cost than what happened. 2. My BofA card included allowing skipping the minimum payment every so often with no late penalty (it would still accumulate interest on the unpaid balance of course). If I had NOT had overdraft protection, what would have happened is that when the check bounced due to my savings/investment transfer not making it in time, I'd have been charged a bounced check fee B on checking, my "skip a payment" would have been used on the credit card, and my next statement balances would be: -L-I credit card, L-B checking, S-L in savings/investments. This would have been a lower net cost than what happened.
  • loeg 5y ago
    Writing a check for a balance that isn’t in your account (step 2) is called “kiting” and is a relatively minor fraud. In general, one should avoid doing it regardless of overdraft fees.
• roystonvassey 5y ago
  Long back when I worked in my first job at a large private bank, I remember being in a meeting where they spoke about overdraft fees + late fees + interest on these + god knows what else and the lady, our systems counterpart, looked at all of us and said 'We better plan a trip to Ganges to atone for all this and we might need to go ever year' (it's a common saying in India, as Ganges is supposed to wash away one's sins) It's been 16 years since I worked there but I still remember this vividly. Modern banking has to be one of the biggest scams legally running and once you go below the prime segments, it's basically just exploiting the poorest and weakest to make some of the easiest money you can.
  • pinkfairy10 5y ago
    Your comment seems false given private banks commonly don’t charge overdraft fees, or late fees, or interest charges.
    • pessimizer 5y ago
      Your comment seems ill-informed.
    • xook 5y ago
      What would classify as a private bank? IME, you're given the option for overdrafts regardless.
      • dan-robertson 5y ago
        I think this is a dialect difference. To me (and presumably the parent?) private bank means a bank that offers private banking services to wealthy clients which generally involves selling certain loans or investment products rather than a current account. Whereas I think the grandparent meant “bank not owned by the state”. But I’m not entirely sure
        • roystonvassey 5y ago
          Yes. I meant private bank as in "not a government owned bank".
• pessimizer 5y ago
  Even worse, they batch transactions by the day, and reorder them highest debit first in order to maximize overdraft fees. So if you spend $5, $5, $5, and $40, in that order, with $38 in the bank, instead of getting one $35 overdraft fee, you get 4. It's the difference between a balance of -$52 and a balance of -$157. I once worked at a bank where they had for a period doublecharged people for overdrafts, driving them into further overdrafts even after deposits clearly intended to cover those overdrafts had been made. The cheery low-level administrators loudly resented that they had to refund the overcharges at all, because people who kept their accounts that low were obviously deadbeats anyway.
  • raydev 5y ago
    I got hit by this two separate times in the early 2000s before I learned it was better to withdraw whatever cash I had left. I was already stuggling, living out of my car, and having additional overdraft fees on top of the one I expected was devastating. It literally left me unable to buy food for days, because each overdraft fee was $20 IIRC. I'm shocked that the transaction reordering is still a practice nearly 20 years later.
• jedimastert 5y ago
  > Maybe the HN crowd has never been in a situation where they were auto-billed into a negative balance I wonder about this some times. It's truly not something I wish upon anyone, but at the same time it's almost a privilege to have live it first hand, as it's an...I was gonna say "unfortunately rare" but I think I'll go with "severely under-represented" point of view in this industry, especially silicone valley. Also yes, overdraft fees are truly disgusting. What's worse is that there are transactions that can bypass "overdraft protection"
  • samhw 5y ago
    > Also yes, overdraft fees are truly disgusting. What's worse is that there are transactions that can bypass "overdraft protection". Totally agree. I used to work in the lending team at a UK bank. Someone on my team was on a panel discussion about change in banking, and gave a brilliantly frank answer on that point: https://youtu.be/M3toHjAABvw?t=3511 https://youtu.be/M3toHjAABvw?t=3511 > it's an...I was gonna say "unfortunately rare" but I think I'll go with "severely under-represented" point of view in this industry I do remember being disturbed by this. I'm from a totally privileged background myself, probably quite a bit more than the rest of us were, but still, something about watching that 'total amount lent' line increasing, it just never sat right. It felt ... profane, like a funeral director cheering because there were more car crashes this quarter. It's hard not to mentally flip that profit graph upside down. And I'm glad that our industry is working harder to be diverse in gender and ethnicity and sexual orientation &c, but it feels like diversity in social class is still horribly neglected. It makes such a hugely palpable difference to have even one person in your team whose parents might be among the people you're lending to (or whatever it is that your company does). I honestly don't well enough understand the sociology of software engineering to fathom why we're so silent on that particular dimension of privilege.
    • jedimastert 5y ago
      > I honestly don't well enough understand the sociology of software engineering to fathom why we're so silent on that particular dimension of privilege. I suspect that, much like much of STEM, computer science requires education, which poorer folks will simply not have nearly the opportunity to even attempt.
• nickthemagicman 5y ago
  It takes orders of magnitude more effort to dispute bullshit than to create it
• jakub_g 5y ago
  Fun fact: when you get money in and money out the same day on an account, some banks count the money out first, so that they can charge you for a possible overdraft Edit: just saw another comment on reordering by tx size, omg https://news.ycombinator.com/item?id=29210357 https://news.ycombinator.com/item?id=29210357
• vsl 5y ago
  You might want to read patio’s previous article linked from this one, which covered this.
• dalyons 5y ago
  Not “used to be” unfortunately. American banks took in somewhere between $9-15 billion (depending on source) in overdraft fees in 2020. It’s super gross.